As both new to entrepreneurship and freelancing, I have just come into a position where I need to start hiring freelancers and this confuses me. How do other employers deal with this? Are there tools/software for monitoring/control of the freelancers that I would employ, that are commonly used? Would special contracts need to be arranged? Is it worth the effort over a fixed price for the project at hand, even if I don't know if I would be overpaying? What are common best practices? I am completely lost. Thanks!
There are monitoring software options out there.
Before you go down that route, I suggest you consider two things:
If a freelancer provides a fixed bid and you agree that it is a fair price, if it takes a less time than you thought it would, you are not "overpaying". You are paying what you agreed was a fair price. In these cases, you are sharing the risk with the freelancer. Obviously there is also a risk to the freelancer than it will take more time than they anticipated.
While there is software that can monitor computer usage, it can be thwarted. Further, it doesn't show the whole picture. Rather than worrying about such things, you should focus on hiring someone you trust. Check their references. Do the due diligence to make sure they are the right fit for your project. And also make sure you are a good partner. Treating a freelancer like they can't be trusted sets up the relationship for failure.
I would start with a small project to see what it's like to work with the freelancer. I have even hired multiple people to do the initial small project so I could compare them and meet multiple qualified freelancers.
There is software that will track, I know that online sites like odesk and elance have it. I have hired through them and initially I requested some freelancers use it.
But now, at least for the free lancers I've worked with, I don't ask that they use it. I don't want them to feel like I'm watching them and don't trust them and I have to assume the software is creepy and annoying to an independent person. If they want to be watched like that they would just work a regular job.
Also, think about the value you are getting - it's not just the number of hours the person spends. Some people work much faster/more efficiently than others.
BTW I did have one person manage to rip me off despite the tracking software so, go figure. That's where starting small pays off.
By the way - regarding contracts - Yes, use one. But know that if the relationship were to sour, the contract probably won't help much because enforcing it will cost you so much time and attorney fees. To me, the contract makes expectations clear, but I don't assume it truly protects me. Especially if the freelancer is in another country. Another reason to start small and get to know the freelancer.
The difference between employees and freelancers is that you don't monitor their time.
The question is not how much is their time worth, it is how much is the service they provide worth. So if you get one XYZ-module for 10.000€ and it is finished after 2 months like you agreed in your contract (important!!), does it really matter how many hours he spent on it?
Often practiced is that the freelancer has to "guess" their hours before the project starts and then he is allowed to ask for 20% more if it was more complicated than expected.
Another idea is to agree on a fixed price. No surprises for you and if he finishes faster, he has some free time to spend with his family.
Don't monitor the person, only monitor the results. Let him show early versions, look at the code quality. Otherwise you will spend a lot of hours trying to figure out if he is cheating or not, depending on your hourly rate it will become a very expensive project.
And don't forget the costs for the looney bin afterwards!
Generally, in asking for concrete evidence that work done is work done, you're going to lose a vast amount of potential freelancers; they're probably expecting you to have actually done a bit of research into their CV and references and are assuming that by agreeing to a price, you are actually trusting them. In addition, you should generally use a contract for almost anything with a freelancer that sets out expectations and deliverables, for some form of professional clarity.
Being paranoid that people are slacking on the job is something that goes through the majority of managers' minds, but actually enforcing that actively (through micro-management, constantly interrupting them, etc.) just generates misery and is seen as a complete breakdown of trust.
With freelancers, you should interview them and have someone you trust (potentially a current employee of yours) assess if they actually know their stuff to avoid getting ripped off. If your project isn't a software project (or cant be assessed through a computer, such as asset designing or video creation), then there is usually no sane way that you can track your freelancer's time through software such as oDesk. I'd probably use Harvest or a simple timer if billing hourly.
Also, if you pay a fixed price for a project and it is done faster, you are not overpaying, period; you agreed to a fixed price for a project and the freelancer gave an estimate of how much it would cost. Besides, if you paid $35,000 for a 4 month project and it only took one, most clients I've known and worked with wouldn't complain and would probably be glad that they have an extra three months for integration and testing.
In these cases, generally a freelancer will give an estimate based on how many projects they are currently working on, and the odds are highly likely that they completed/lowered priority on other tasks for your project in order to get it done faster. Trying to penalise them or lower the price you pay because something was done faster than expected is the most efficient and reliable way to lose a good worker and a heap of reputation.
In short, don't push monitoring software onto freelancers unless they reasonably expect it (such as oDesk contracts). Trust them to do work that you've both agreed to; use a contract, and don't cut corners.